NewsTrading 2017-07-07T22:16:15+00:00

Challenging yet profitable seconds

News trading utilizes the fast price movement caused by financial news from different countries, released at the predefined time. Approximately one week before the actual news release, e.g. GDP or unemployment rate, the averaged expectations of analysts become available to the public. At the news release moment, usually with 1 second’s precision, country’s statistical institution releases the actual figure, which is instantly compared to aforementioned analysts’ expectations. If there is enough difference between those two, price on a respective currency pair can change by 30-100 pips in a matter of minutes or even seconds:

As it is evident also from the pics above, the momentum can continue after the initial spike, and so the profit can get really big. Also, hours before the major release many pairs start to follow the news anticipation and not the technical trading principles. It is obvious that ignoring major news releases in regular day trading, especially on low TF’s, is devastating. You can either properly news trade the releases or pause all trading during around the release time. Making use of news releases profitably is much more complicated, then it originally seems. Surprisingly, many things should be taking into consideration while analyzing the release, decision making should be lightning fast and the trading platform should function dependably. Most common misconception among beginners is that, compared to technical trading, news trading is a much easier and faster way to grow capital. Insufficient analysis, lacking money management and hasty decision making can easily result in whole capital being lost, sometimes in less than ten seconds.

I started my forex trading career specifically with news trading, due to the aforementioned misconception of it being fast and easy way to grow the capital. In practice, profits exceeded loses only when costly beginner mistakes were handled and each news release was traded many months in a row, with a reasonable strategy. Right when the news trading started to generate profits, my broker of that time (Trading Point, Cyprus) added delay and slippage to my trading platform. This unpleasant setback with news trading ended up being beneficial, as I started learning about technical analysis trading and begun the search of truly reliable broker, for both trading types. The main principle of fx-trading.fi is to offer a compact and straightforward knowledge base, with own experience based tips, so that the beginner would save time and effort, learning and turning the knowledge into profit, as soon as possible. News trading section also follows this main principle. The practical experience from hundreds of taken and analyzed news releases is condensed on this page. Reader will get a good knowledge base and possibly save many months just by comprehending this one page. With that base, beginner can naturally proceed to live trading after few months of demo practice. Unfortunately, this type of knowledge base was not available when I started my career. And as far as I know, it is not available nowadays, possibly not even in English. In my own language (Finnish) there are few primitive English to Finnish copypaste translated sites with the usual “five start” broker banners. There are also some Finnish forums with shallow discussion on spike trading. This may well be the case for many others non-English speaking countries. To conclude the news trading’s introduction: the right way to begin trading career is, instead of news trading, to concentrate on technical analysis and familiarize oneself with this page’s strategies. News trading requires fluent use of MT4 platform, implementing the principles of technical analysis (i.e. S/R, fib, price action, market sentiment) and rather seasoned trading mentality.

Tradeable news releases

On daily basis, approximately every 1-3 hours, some financial news are released, but only a fraction of these have direct and tradeable impact on Forex pairs. It is extremely important to trade only the releases, which can clearly and predictably move the price chart, instead of causing e.g. just a single 10-20 pip jiggle. If the historical performance of the release and the current market condition are not analyzed, yet the buy/sell button is pressed when price goes into one direction – the trade will usually end up as a “surprising” loss. Supposedly, the theoretical probability of news trade is 50/50, but there are many factors against the unprepared and hasty trader. List of tradeable “high impact” news varies from time to time and, for instance, many of Eurozone’s, US’s and UK’s releases have been off that list for a while. Below is the current (and periodically updated) list of important releases, that I myself follow and trade:

  • UK: Bank Rate, MPC Bank Rate Votes, Retail Sales m/m, CPI y/y, Prelim GDP q/q
  • USA: ADP NFP, NFP, Advance GDP q/q, FOMC Rate & Statement
  • Australia: Bank Rate & Statement, Employment, CPI q/q, GDP q/q
  • Eurozone: Minimum Bid Rate, ECB Press Conference
  • Canada: Employment

Thorough descriptions of the above releases and some additional ones, which are not tradeable at the moment, are summarized into this file. It is definitely worth reading it properly, keeping in mind that similarly named releases are country specific and so, have different behavior. Some of these news are released monthly, while some – quarterly. There are about 10 potentially tradeable releases each month. Less then half of those meet the deviation requirement. There are, of course, plenty of also lower impact releases or the important releases from other countries like Japan, China, Switzerland, Norway etc. Based on my trading experience, those are not worth the time. Also in this case: quality over quantity! Legitimate, organized news trading gains around few hundred pips per month, already with less than 10 trades. This is due to the fact, that SL is around 10 pips and the aforementioned releases usually generate a 30-80 pips in minutes or even seconds. It might be motivating to calculate the corresponding Risk/Reward ratio and trader’s hourly wage with certain capital.

News calendars and analysis

Internet offers a wide variety of news release calendars. Considering the modification possibilities, clarity and functionality I can recommend ForexFactory’s and Investing.com’s calendars. Latter one, with non-tradeable releases removed, I use directly via the MarketView section. In addition to calendar, one or several news analysis sites should be utilized. In the beginnig of my news trading career I used only the FPA news signals free service, where the upcoming releases and prevailing market conditions were thoroughly analyzed. Based on these, the tradeable deviation and trading plan alternatives were suggested. Service has had many big changes over the years (e.g. autoclicker app and respective trading style introduced in 2013), but it is still a useful tool for beginner news trader. Another good analysis page option was found by coincidence and as far as the news trading forums, not many people are aware of this free professional news service’s existence: Fast Economic News (FEN). Back in 2012 they launched a web-based charting service, with which the old news releases’ price action could be analyzed even with extraordinary 1 second precision. It is wise to use this service (“Settings” and “Find” options), especially if own notes and video recordings are yet insufficient. FEN news analysis page is a part paid news trading tool, and so, I would once again remind reader to concentrate only on free content behind that aforementioned link, and not to stray elsewhere. As far as I know, FEN’s paid autoclicker tool (approx. 200$ per month) is indeed useful, but I have been trading successfully without it. Free and functional autoclicker has been available for a while on FPA’s website above.

Trading types and basics

Generally there are three main ways to trade news releases:

Long and short term pre-news trading. Long term pre-news approach is a sentiment trading. It is based on market’s predominant speculative expectation and associated price movement, several hours before the actual news release. For some news this speculative price move starts only minutes before release time – then it is a short term pre-news trading possibility. When trading pre-news, it is crucial to study each release’s historical behavior and analyze the market beforehand. Otherwise, pre-news trade becomes a betting game.

Spike trading. The fastest, and so, the most challenging one to many. News release comes out with one second precision and causes and instant price reaction, which trader should react to in a very fast and predetermined manner. Things to be done and considered beforehand: thorough market analysis, news release’s historical behavior, required deviation, dependable news source and possibly some tool to make own trading faster/convenient during those crucial seconds. Broker’s technical reliability and functionality becomes a truly decisive factor for spike trading. One way to go alone with the news spike is to conventionally press buy/sell button right after news release time. Another way is to open two opposite orders a moment before the release. When the spike comes, one position closes on tight SL and another starts to make profit. Choppy price action will cause two unfortunate SL hits. Third way of spike trading is to place opposite pending stop orders on both side of the current price at certain distance, also moments before the release. In case of major spike, only one (either buy or sell) order opens, and the second one simply removed. This helps with the possibly choppy price action, but makes the entry slower, due to execution delay during price spike.

Retrace trading. Order is placed at the retrace stage, after the news release and the first spike. When the required minimal deviation is achieved, it becomes probable, that after the first spike price will come back (retrace) 30-50%, and then it will continue in original spike direction for many pips. In principle, this is a less risky approach, because it avoids the gap delay and widened spread of a hectic news release moment. On the other hand, it enables very little trading possibilities. In many cases, first spike (lasting less then a minute) is the most profitable one, and it does not have a sufficient and consistent retrace. It is obvious, that the historical behavior of each release for various deviations should be studied and considered – also with this trading approach.

For me, the first proper guide on news trading’s basics was Henry Liu’s “Definitive Guide to Fundamental News Trading” released in 2008, containing over 100 pages. Later on, in 2010, it was updated and revised into a lite version. It is worth reading only pages 5-22. Overall, this actually is quite an informative piece, although its tradeable news listing has, long ago, become outdated. Originally Henry Liu worked as a real news trader and FPA’s “free newstrade signals” specialist, but then he started to market his own “super profitable” technical trading’s system and ended his FPA involvement.

News trader’s routine and tools

News trading, done alone with regular trading, requires sufficient time to prepare for a release and a total concentration during the release moment. If this is problematic for a day trader, the news releases should be avoided altogether. Specific trading approach and routine, which suit trader’s mentality, are required for success in news trading. From my own experience, I would suggest the following routine for (spike) trader to start with:

  • On Sundays, check news releases of upcoming week and mark the tradeable ones. Mind those in day trading.
  • Few hours before the news, study own notes, market conditions and news analysis.
  • 30 minutes before news, apply the news trading template in MT4 on a tradeable currency pair. Note major S/R levels.
  • Check the last minute market sentiment changes and news speculations via MarketView’s links (e.g. ForexLive).
  • Based upon everything above, make a trading plan with required deviation and trade execution parameters.
  • 5 minutes before the news, open FX Talk or/and other news source alongside MT4 window. Set possible pending orders.
  • If the required deviation is not met or the price reaction is irrational and not as expected – do not trade.
  • If you were (for any reason) unable to act per original plan at the required moment – do not trade afterwards.

Following these steps will definitely take beginner trader far into right direction. News trading activity can be optimized and made more convenient by using the right tools alongside MT4 platform. First off, the computer’s time synchronizer is a crucial tool for news trader. Windows’ own synchronization is far less precise and the clock is usually off by several seconds. MT4’s own clock is also not very precise, but its biggest issue is, that the time is updated only when the price chart moves. Millisecond precision is especially important, when using automatic order script to set buy/sell pending orders only a few seconds before the release. Another tool that I use is AutoHotkey keyboard macro program; great versatility and extremely low memory load. Before the release it is convenient to open required webpages, tools and notes by a press of a button. For instance, the volume of ForexLive newsfeed service can be adjusted by mouse wheel, without going to the actual tab and dragging the cursor. There are plenty of time and effort saving possibilities. Here is my .ahk template with instructions. Another important tool for news trader is a screen video-recording app CamStudio. Video recording is the best and actually the only way to store analyzable date of a fast (1st minute) price spike’s nature and trading platform’s technical performance (spread, execution). Those videos also help to identify own mistakes and bad habits during strategy’s execution. Generally, recorded material improves all the aspects of own news trading. I suggest to start recording approx. 15-20s prior news and to stop around a minute after the release, when the most volatile price behavior has settled down. Here are the CamStudio settings that I use. More conventinal screen capture is done a few hours after the release, to store an analyzable picture of news’ long-term effect. Last but definitely not least are the notes on all followed releases every time they occur: chosen strategy and SL/TP/TS values, platform’s performance (spread, execution), spike’s behavior, own actions and implementation of the strategy, improvement suggestions to trade parameters and own mentality. Everyone will find an own convienient way to make those notes (e.g. into text or spreadsheet file) and it will eventually become a rather pleasant and refining routine.

Remarks

In addition to regular calendar-news, there are also surprising large scale events occasionally affecting the global markets: S&P’s downgrades, Japan’s forex interventions, Switzerland’s bank’s (SNB) forex interventions and e.g. setting a 1.2000 floor for EUR/CHF, Euro-zone’s debt and exit issues, oil crises and nature disasters like Japan’s earthquake. As past years have shown, influential surprises usually cause price shifts of hundreds of pips in a matter of seconds/minutes and the trend continues for several hours or even days. If trader reacts to these in time and in a correct manner, capital gets multiplied with extremely low risk and simple trade management. Trailing stop setting, even numbers and Price Action help to maximize the profit and to find a reasonable exit point.

Somewhat anticipated and predictable major news are being discussed on most forex news sources. In our MarketView section there several good alternatives. It is worth trying them all and selecting 2-3 that suit you the best; more than one source give a broader perspective right away. Personally, I am used to following the updates of ForexLive, FXStreet and ForexTalk. MarketView section contains also an live stock-market’s view, which tells the ongoing risk sentiment. Strong risk appetite or risk aversion might affect the news-time price action even more than the deviation itself. On the other hand, the results of certain releases do change the risk sentiment. In general, price movements caused by risk sentiment, should never take the trader by surprise, because they may proceed for hours and upto 100-200 pips.

Successful news trading required solid experience in (MT4) trading platform and the solid functionality of the platform itself. Spread widening around the news release release moment is a widely known challenge and it happens, as far as I know, with all brokers to some extent. Fraudulent market makers will of course offer a fix spread option, but still they will intentionally make their spread wider during news. On a contrary, a reliable STP broker can have spread widen 5-15 pip or even over 20 pips momentarily, depending on release, time of day and currency pair. This is solely due to broker’s liquidity provider(s) situation, which broker itself can not control. During the initial spike price “jumps” sometimes even tens of pips in under 1 second. Order set during this “jump” actually opens only where the price stops for the first time; same goes for the pending orders. In those cases slippage is totally normal, since the STP broker can offer a best available price only when the fast price jump stops somewhere. My own experience with Tickmill UK, which has fast servers and deep liquidity pool, showed very low (if any) slippage with all types of trading, except for early Monday-morning market opening gap, when price information from liquidity providers comes with delay. In demo practice, which should be done for at least two months, spread fluctuation is realistic, but slippage can not be represented and experienced. This is because for demo accounts market prices are not taken from broker’s liquidity provider. A general solution for news trading’s spread & slippage challenges is having an experience in price behavior for each release and choosing a suitable trade parameters based on that experience.

For the Extra section, I have compiled a thorough release-specific summary. It has suggestions for currency pair, deviation and trading approach, as well as personal notes on spread and price behavior around the release time. With the extra content comes my news trading template, position management tool (making SL/TP usage much faster) and a program for setting opposite pending orders on a desired distance, automatically with 1 second precision. Java-based news result program, which instantly shows news release deviation, is also included.

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